Stay bullish and diversified - Global Market Brief June 2018 - Standard Chartered
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Standard Chartered Bank Global Market Brief | 25 June 2018 2 Foreword Diversity matters. That is one lesson markets again gave us in the first few months of 2018. After a very strong 2017, we saw a “break in diversity” in Q1 18, when the markets got complacent with the positive narrative for global equities and the negative narrative for the USD. With diversity having now returned to markets, through a typical sudden pick-up in volatility, sharp moves have become less likely, at least for now. A key pillar of our investment philosophy is the pervasive role of diversity: 1) Diversity of views and objectives among market participants to ensure resilient and liquid markets 2) Diversity in the input of views and ideas to make better investment decisions 3) Diversity of assets held to ensure growth and resilience of one’s portfolio As we went through the end of 2017, we saw global equities rally strongly Alexis Calla amidst very low levels of volatility, while the USD declined in almost a Chief Investment Officer linear fashion. Simultaneously, we saw a significant decline in market diversity, as measured by various indicators such as investor positioning, “fractal dimension”* and the lack of diversity in the views of brokers and asset managers. In hindsight, this was indicating that we were likely to see at least a short-term reversal of these trends and a pick-up in volatility, which is exactly what the market delivered. Since then, we have seen the return of diversity. While positioning in some instances remains quite high (for example, short-term speculators are still significantly short US Treasury and USD futures), other indicators suggest there is less reason to be concerned. Certainly, there is significant diversity of third-party views, with the debate on the USD's outlook becoming particularly intense. Meanwhile, fractal analysis* suggests there is less “groupthink” when it comes to determining asset price movements. Just to be clear, increased diversity, in this context, is not necessarily good “Market diversity has or bad. But, just as a rise in volatility is the result of a collapse in diversity, returned. Until it recedes a rise in diversity reduces the risk of any sharp asset price movement, be it gains or losses. Therefore, while we remain constructive on the outlook for again, this means, market global equities, we believe gains may take some time to come to fruition. We will continue to closely monitor our diversity indicators. moves (up or down) are likely to be less severe * Fractal analysis is a mathematical way of measuring the diversity of supply and than we saw in the first demand forces. “When investment horizons converge to a groupthink herd, the fractal structure breaks down… This is a warning sign of an impending liquidity- half of 2018.” triggered trend reversal, either short-term or long-term.” (Source: BCA Research) This reflects the views of the Wealth Management Group 2
Standard Chartered Bank Global Market Brief | 25 June 2018 3 Investment strategy Stay bullish and diversified • We continue to strongly favour equities, given they typically outperform IMPLICATIONS in the late stages of an economic cycle. We favour global equities over corporate bonds and cash. Within equities, the US remains our most FOR INVESTORS preferred region, supported by strong earnings growth, though we expect most equity markets to perform well. Global equities remain our • Yields are gradually becoming more attractive. USD interest rates and preferred asset class bond yields have risen significantly over the past 12-18 months. As global growth remains strong and inflationary pressures gradually build, we expect this trend to broaden to other regions, such as the Euro area. This Relative preference for US will, over time, allow income investors to achieve higher yields. equities and EM USD • Now is not the time to go all-in on risky assets. We favour diversification. government bonds While our central scenario is bullish for global equities, timing the end of the market cycle is fraught with difficulty. Therefore, ensuring consistency with one’s appetite for risk and including investments that Balanced strategies offer should offset losses in the event of a sustained equity market sell-off are attractive risk/reward; multi-asset key, in our view. income remains relevant for income investors Financial market performance in the first half of 2018 has been in stark contrast to 2017. At face value, asset class performance suggests a similar environment to last year with global equities, bonds and commodities (ex-agri) delivering 2.7%, - 1.1% and 8.9% returns since we published our 2018 Outlook, respectively. However, this number masks the journey: while December and January were characterised by strong returns, they were followed by sharp losses in February and March and have been relatively range-bound thereafter. Looking forward, we continue to see the global economy as being in the late stage of the economic cycle, as envisaged in our 2018 Outlook. This is a period usually characterised by a gradual heating up of inflationary pressures, increase in policy rates and strong equity market performance. Figure 1 Figure 2 Global equities trendless in H1 this year USD rally a key risk to EM assets MSCI AC World in H1 of 2017 and 2018 MSCI EM (LHS) and USD index (RHS, inverted) 1,600 70 120 75 1,200 80 110 Index 85 Index Index 800 90 100 95 400 100 90 0 105 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jan-05 Jul-09 Jan-14 Jul-18 1H17 1H18 MXEF index last price DXY currency last price (RHS) Source: Bloomberg, Standard Chartered Source: Bloomberg, Standard Chartered This reflects the views of the Wealth Management Group 3
Standard Chartered Bank Global Market Brief | 25 June 2018 7 Macro overview US economy in the lead • Core scenario: The global economy continues to grow above recent IMPLICATIONS trend, led by the US, although growth has moderated in the Euro area, Japan and China. EMs face increasing challenges from USD strength. FOR INVESTORS • Policy outlook: We expect the Fed to hike rates two more times in 2018, the ECB to end bond purchases by December and the BoJ to stay The Fed likely to raise rates two accommodative. The PBoC is likely to balance growth with reforms. more times in 2018 • Key risks: Inflation surge, mainly in the US; trade tensions; and tighter liquidity conditions, especially in the EMs, from a stronger USD The ECB likely to end bond Core scenario purchases by December 2018, while the BoJ remains highly The Global Investment Committee continues to assign a 70% probability to a accommodative scenario of moderate-to-strong growth and limited inflation unfolding in the next 12 months. The US economy has taken the lead in driving global growth on the back of last year’s tax cuts, which has helped boost consumer confidence and China likely to balance domestic- encouraged businesses to start investing. Growth in Europe and Japan has driven growth with structural moderated, although they are likely to grow above their long-term potential over reforms the coming year. China is balancing a growth-moderation with structural reforms. EMs have seen fund outflows this year as the USD strengthened, although a gradual pace of rate hikes in the US and still accommodative central banks in Europe and Japan are likely to relieve some of the pressure. Figure 3 US growth and inflation outlook has been upgraded after the tax cuts in December Benchmark Fiscal Region Growth Inflation rates deficit Comments US emerged as the main global growth driver, US while other major economies slowed. Inflation is a key risk. Fed to hike twice more in 20 8 Euro area growth expectations cut further, but Euro area remain above potential. Inflation still tepid. The ECB to end bond purchases by December Brexit transition path remains uncertain, UK clouding economic outlook. BoE rate hike postponed as inflation slows Export rebound drives recovery, although trade Japan tensions risk delaying private investment. The BoJ to keep easy polic amid low inflation Asia China’s growth moderates amid deleveraging, ex- although consumption remains robust. Asia to Japan raise rates modestly to align with the Fed EM ex- Pressure on non-Asia EMs likely to ease as Asia USD strength dissipates, China remains stable Source: Standard Chartered Global Investment Committee Legend: Supportive of risk assets Neutral Not supportive of risk a sets This reflects the views of the Wealth Management Group 4
Standard Chartered Bank Global Market Brief | 25 June 2018 8 Bonds Turning selective in EM risk • Bonds remain a core holding as we expect them to deliver moderate IMPLICATIONS returns, but we like their defensive nature as we are likely in late stage of the US economic cycle. We expect 10-year yields to rise gradually to FOR INVESTORS the 3.0-3.25% range over the next 12 months. • Emerging Market (EM) USD government bonds are our preferred area Prefer EM USD government within bonds owing to their attractive yield and relatively stable credit bonds quality. However, we reduce our preference for EM local currency bonds as we become more selective in where we take EM risk. Expect 10-year US Treasuries to Figure 4 trade in the 3.0-3.25% range Bond sub-asset classes in order of preference Rates Macro Valua- Bond asset class View policy factors tions FX Comments Favour slightly short maturity Attractive yields, relative value profile (5 years) for USD- EM USD government NA and stabilising credit quality are positive denominated bonds High credit quality, defensive Asian USD NA allocation. Influenced by China Figure 5 risk sentiment Where markets are today Attractive yield balanced by 1m EM local currency changing central bank stance and Bonds Yield return currency risks DM IG Attractive yields on offer, offset DM HY corporate by expensive valuations government *1.55% 0.3% (unhedged) Likely to outperform DM IG EM USD DM IG corporate government bonds. Yield government 6.51% -0.4% premium is relatively low DM IG Returns challenged by DM IG government NA normalising Fed and ECB monetary policy corporates (unhedged) *2.94% 0.2% DM HY 6.26% -0.3% Source: Standard Chartered Global Investment Committee corporates Legend: Supportive Not Supportive Neutral Preferred Less Preferred Core Asia USD 4.96% 0.3% EM local currency 6.69% -2.2% Calmer waters ahead? government The first half of 2018 was a challenging period for bond investors as US yields Source: Bloomberg, JPMorgan, Barclays, rose by nearly 50bps (or 0.5%), leading to losses in most areas within bonds. Citigroup, Standard Chartered *As of 31 May, 2018 Additionally, a stronger USD led to the re-emergence of concerns around EMs, which led to the underperformance of EM bonds relative to global bonds. In our opinion, we have seen bulk of the increase in 10-year US yields and believe 10-year US Treasury yields are likely to edge only moderately higher to 3.0-3.25% range, unless long-term inflation expectations rise sharply. Nevertheless, in light of higher currency risks, we choose to be more selective in risk-taking, by reducing our exposure to EMs and shortening our maturity profile slightly below neutral (5 years). This reflects the views of the Wealth Management Group 5
Standard Chartered Bank Global Market Brief | 25 June 2018 9 Equities US equities are preferred • Global equities remain our preferred asset class. Consensus earnings IMPLICATIONS growth for the MSCI All Country World index in 2018 is 16% and the forward P/E ratio is almost in line with the long-term average at 14.9x. FOR INVESTORS • The US is our preferred region, implying we expect outperformance relative to global equities over the next 12 months. Consensus Global equities our preferred expectations are for earnings growth of 21% in 2018, aided by tax cuts asset class and elevated corporate margins. Technology, energy and financials are our preferred sectors. • Asia ex-Japan equities have been reduced to core (from preferred), US is a preferred market implying our expectations of the region performing in line with global equities in the next 12 months in USD terms. Double-digit earnings growth and attractive valuations are still supportive. Prefer China within Asia ex- Japan • Euro area equities are a core holding. Rising capacity utilisation paves the way for higher capital expenditure. However, the end of ECB quantitative easing presents a risk. The UK has been upgraded to core Figure 7 Where markets are today UPDATE (from least preferred) on late-cycle growth optimism. Market Index • Emerging Market (EM) ex-Asia is a core holding. Deteriorating P/E ratio P/B EPS level fundamentals a concern, but high commodity prices can be an offset. US (S&P 500) 17x 3.1x 16% 2,750 Figure 6 Euro area (Stoxx 50) US is our preferred market 14x 1.6x 8% 3,404 Return Economic Bond Japan (Nikkei 225) Equity View Valuations Earnings on Equity Data yields Comments 13x 1.3x 7% 22,693 Robust earnings growth, UK (FTSE 100) US potential for share buybacks 13x 1.7x 8% 7,556 Earnings recovery, MSCI Asia ex-Japan Asia ex- Japan improving margins and fair valuations. Trade war a risk 12x 1.5x 12% 686 MSCI EM ex-Asia Elevated oil price 10x 1.4x 19% 1,303 EM ex- Asia supportive of earnings. But rising US rates are Source: FactSet, MSCI, Standard weighing on markets Chartered. Improving credit growth is a Note: Valuation and earnings data refer to Euro area positive. Weak sentiment MSCI indices, as of 21 June 2018 due to trade war risks. Strong balance sheets, Japan falling net debt to equity. Trade war a risk Rising commodity prices UK boosting FTSE100, but domestic demand is weak Source: Standard Chartered Global Investment Committee Legend: Supportive N eutral Not Supportive Preferred Less Preferred Core Holding This reflects the views of the Wealth Management Group 6
Standard Chartered Bank Global Market Brief | 25 June 2018 11 Alternative strategies Positioning for a higher volatility regime in 2018 IMPLICATIONS • Given volatility has risen this year, we believe an alternatives allocation, FOR INVESTORS with its defensive characteristics, can be beneficial over the longer term when managing drawdown risk. Use both substitutes and • Our preference is still Equity Hedge; we have also recently upgraded diversifiers Global Macro to a core strategy alongside Relative Value. • Our alternatives allocation is flat 0.01 % YTD, as compared with global equities 0.3% YTD and global fixed income -1.7% YTD. Equity Hedge (preferred); global macro and event driven (core) Mid-year performance review Global equity markets have had a volatile first half with geopolitics, trade tensions Alternatives allocation weights and inflation worries dampening investors’ initial enthusiasm over economic are: Equity Hedge 46%, Relative fundamentals and strong corporate earnings. Volatility also spiked early in the Value 28%, Event Driven 8% & year, but has now settled at lower levels, albeit higher than the extremely low Global Macro 18%. levels seen in 2017. While our central global scenario is positive on global equities, we believe we have moved to a higher volatility regime, as compared with the recent past. As such, we continue to advocate investing into alternatives Figure 9 strategies, as part of a diversified allocation, to manage overall drawdown risk Where markets are today over the longer term. 1m Alternatives YTD return Equity Hedge 1.0% -0.8% Figure 8 Relative Value 1.2% -0.1% Traffic light framework alternatives strategies Event Driven -4.4% -1.8% Description View Drivers for strategies to perform Global Macro -0.8% 0.4% In essence, buying • Positively trending equity markets Alternatives 0.01% 0.0% Equity Hedge undervalued stocks and selling overvalued stocks • Rising equity market dispersion Allocation Source: Bloomberg, Standard Chartered Looking to take advantage • Lower interest rate levels SUBSTITUTES Relative of differences in pricing of • Cost of funding, narrowing credit Value related financial instruments spreads Taking positions based on • Positively trending equity markets Event Driven an event such as a merger or acquisition • Rising mergers and acquisitions • Narrowing credit spreads Looking to exploit themes, • Rising volatility and credit spreads DIVERSIFIERS trends and asset class Global Macro relationships (correlations) • Increasing cross asset dispersion at a global level, generally with leverage • Clear market trends (up/down) Source: Standard Chartered Legend: Supportive Neutral Not Supportive Preferred Less Preferred Neutral This reflects the views of the Wealth Management Group 7
Standard Chartered Bank Global Market Brief | 25 June 2018 12 FX USD near-term gains possible • We continue to expect US trade and budget deficits and narrowing real IMPLICATIONS interest rate differentials to drive USD weakness in the medium term. However, in the short term, there remains scope for further USD FOR INVESTORS strength. • The JPY is largely range-bound, driven by fears of global trade USD weakness medium term disruption, interest rate differentials on one side and safe-haven status on the other. EUR strength medium term • Asian Emerging Market (EM) currencies remain vulnerable near term to contagion. We are monitoring CNY, which has remained an EM anchor. USD strength near term Figure 10 Foreign exchange; key driving factors and 12-month outlook Figure 11 Real interest Broad Risk Commodity Where markets are today rate USD Currency View differentials sentiment prices trend Comments Current 1m FX (against USD) level change USD NA NA Rate hiking trajectory priced in Asia ex-Japan 108 -1.1% Monetary policy AUD 0.74 -2.1% EUR NA normalisation not yet complete EUR 1.15 -1.8% GBP 1.31 -2.0% Range-bound amid JPY NA opposing constraints JPY 111 0.7% Inversely tracking the SGD 1.36 -1.2% GBP NA USD awaiting Brexit As of 21 June 2018 clarity Source: Bloomberg, Standard Chartered RBA policy and EM AUD weakness a risk NA Weakening global EM FX growth environment Standard Chartered Global Source: Bloomberg, Investment Committee Legend: Supportive Neutral Not Supportive Preferred Less Preferred Neutral Bearish USD bias longer term; short-term strength still likely Strong counter-trend rally continues. The USD has been supported by softening ex-US growth momentum and rising real (net of inflation) US interest rates. US international trade policy concerns may be adding to near-term USD strength and exposing vulnerabilities for some EM countries, whose asset prices have historically weakened during periods of USD strength. We remain longer-term bearish. Our view continues to be that the current short- term corrective rally will peak and that the USD will re-establish its long-term structural decline. We see this driven both by (i) narrowing global growth and real interest rate differentials, where central banks collectively begin to normalise their policies, and (ii) a renewed focus on US’s twin budget and trade deficits. This reflects the views of the Wealth Management Group 8
Standard Chartered Bank Global Market Brief | 25 June 2018 13 Multi-asset Late-stage economic cycle can benefit a balanced strategy IMPLICATIONS • We continue to believe a balanced allocation will outperform an income FOR INVESTORS allocation, given the late-stage of the economic cycle • However, for income-seeking investors, a multi-asset income allocation Focus on aligning investment can continue to help an investor’s regular income goal return expectations with your • We update both our balanced and income allocations, review appetite for risk performance and highlight key current positioning for H2 18 In our 2018 Outlook, we shared two distinct asset allocations focusing on goals for Put together your allocation using i) capital growth investors and ii) income focused investors (Figure 53). “building blocks” which are diversified across asset classes Mid-year, we find the performance of our balanced and income allocations as follows YTD, 0.5% and -1.1%, respectively. In sharp contrast to 2017, H1 2018 has been challenging for asset classes across the board (Figure 49). Looking at Tailor your overall multi-asset recent history, it reminds us that asset class performances can vary and continues allocation in line with your return to highlight the benefits of diversifying an investment allocation to generate expectations and risk appetite sustainable long-term returns. Figure 13 Figure 12 Key multi-asset views A challenging H1 2018 for asset returns Allocation 1m Asset class returns from 2012 to 2018 YTD* performance YTD return 2012 2013 2014 2015 2016 2017 2018* Total return balanced 0.5% -1.2% Global HY Global Global HY Global Global Multi-asset income -1.1% -0.8% Asia Corp Asia Corp Bonds Equities Bonds Equities Equities Source: Bloomberg, Standard Chartered 19% 23% 8% 3% 14% 24% 2% Global HY DM IG Sov DM IG Sov EM Sov HC DM IG Sov EM Sov HC EM Sov LC Bonds Bonds Bonds 17% 8% 8% 1% 10% 14% 0% Global Global HY Global HY DM IG Sov DM IG Corp EM Sov HC EM Sov LC Equities Bonds Bonds 16% 0% 8% 1% 9% 10% -1% Global EM Sov LC DM IG Corp EM Sov HC DM IG Corp EM Sov HC Global Bonds Equities 15% 0% 7% -1% 8% 10% -2% Global Global Asia Corp Asia Corp DM IG Corp DM IG Corp DM IG Corp Equities Equities 14% -1% 4% -2% 6% 9% -2% DM IG Sov DM IG Corp Global Bonds Global Bonds Global Bonds Asia Corp Asia Corp Bonds 11% -3% 1% -3% 6% 8% -2% Global HY Global HY DM IG Sov EM Sov HC DM IG Sov Global Bonds EM Sov HC Bonds Bonds 5% -5% 0% -5% 4% 7% -5% Global Bonds EM Sov LC EM Sov LC EM Sov LC Global Bonds Asia Corp EM Sov LC 4% -7% -2% -12% 2% 6% -5% Source: Barclays, JPMorgan, Citi, MSCI, Bloomberg, Standard Chartered; * performance till 15 Jun 2018 This reflects the views of the Wealth Management Group 9
Standard Chartered Bank Global Market Brief | 25 June 2018 14 Our recommended allocations Tactical Asset Allocation - (12m) EM Sov HC UK Japan 27% Europe ex- 5% 5% UK EM Sov LC 20% 18% Asia ex- Japan BOND EQUITY 28% DM HY Allocation 13% Allocation (Asia-focused) (Asia-focused) Asia Corp HC North Other EM DM IG Corp 18% America 10% 20% DM IG Sov 32% 4% Relative EM HC Sov Sub Value 25% financials 28% 43% EM LC Sov Event DM HY & 11% Driven Higher Income NON-CORE ALTERNATIVES 8% Leveraged Loans BOND INCOME STRATEGIES 26% Allocation Covered Allocation Allocation Calls Asia HC 44% Others 19% Equity Global 13% DM IG Corp Hedge Macro DM IG Sov 10% 46% 18% 9% Tailoring a multi-asset allocation to suit an individual's return expectations and appetite for risk • We have come up with several asset class "sleeves" across major asset classes driven by our investment views • Our modular allocations can be used as building blocks to put together a complete multi-asset allocation • These multi-asset allocations can be tailored to fit an individual's unique return expectations and risk appetite • We illustrate allocation examples for both Global and Asia-focused investors, across risk profiles (page 40) BOND Higher Income EQUITY NON-CORE ALTERNATIVES Allocation BOND Allocation Income STRATEGIES (Asia-focused) Allocation (Asia-focused) Allocation Allocation • For investors who want • For investors who want • For investors who • For investors who • For investors who a diversified allocation a diversified allocation want a diversified want to diversify want to increase across major fixed across major fixed allocation across exposure from diversification within income sectors and income sectors and major fixed income traditional fixed their allocation regions regions sectors and regions income and equity • Include both • Asia-focused allocation • Asia-focused allocation • Asia-focused into "hybrid" assets “substitute” and allocation • Hybrid assets have “diversifying” characteristics of strategies both fixed income and equity • Examples include Covered Calls, REITs, and sub- financials (Preferred Shares and CoCo bonds) This reflects the views of the Wealth Management Group 10
Standard Chartered Bank Global Market Brief | 25 June 2018 15 Asset allocation summary Tactical Asset Allocation - (12m). All figures are in percentages. ASIA FOCUSED GLOBAL FOCUSED Moderately Moderately Summary View Conservative Moderate Aggressive Aggressive Conservative Moderate Aggressive Aggressive Cash ● 9 0 0 0 9 0 0 0 Fixed Income ● 66 45 35 9 66 44 35 10 Equity ● 24 40 50 81 24 41 50 80 Alternative Strategies ● 1 15 15 10 1 15 15 10 ASIA FOCUSED GLOBAL FOCUSED Moderately Moderately Asset class View Conservative Moderate Aggressive Aggressive Conservative Moderate Aggressive Aggressive USD Cash ● 9 0 0 0 9 0 0 0 DM Government Bonds ● 3 2 2 0 5 3 3 1 DM IG Corporate Bonds ● 12 9 6 2 16 11 8 3 DM HY Corporate Bonds ● 9 6 5 1 12 8 6 2 EM USD Sovereign Bonds ● 18 12 10 2 15 10 8 2 EM Local Ccy Sovereign Bonds ● 12 8 6 2 9 6 5 1 Asia Corporate USD Bonds ● 12 8 6 2 9 6 5 1 North America ● 8 13 17 27 13 21 26 41 Europe ex-UK ● 5 8 10 15 2 4 5 8 UK ● 1 2 2 4 1 2 2 4 Japan ● 1 2 2 4 1 2 2 4 Asia ex-Japan ● 7 11 14 23 5 8 10 15 Non-Asia EM ● 2 4 5 8 2 4 5 8 Alternatives ● 1 15 15 10 1 15 15 10 100 100 100 100 100 100 100 100 Source: Bloomberg, Standard Chartered For illustrative purposes only. Please refer to the disclosure appendix at the end of the document. Note: 1. For assets assigned small allocations, investors may prefer to instead allocate to a broader category. 2. We are changing the way we cover ‘Commodities’ from our asset class categories. ● Least preferred ● Core holding ● Most preferred This reflects the views of the Wealth Management Group 11
Standard Chartered Bank Global Market Brief | 25 June 2018 16 Market performance summary* Bonds Year to date 1 month SOVEREIGN Global IG Sovereign -1.5% 0.3% US Sovereign -1.4% 1.1% EU Sovereign -2.3% -0.1% EM Sovereign Hard Currency -5.3% -0.4% EM Sovereign Local Currency -5.7% -2.2% Asia EM Local Currency -3.8% -0.8% CREDIT Global IG Corporates -3.2% 0.2% Global HY Corporates -0.8% 0.2% US High Yield 0.7% 0.9% Europe High Yield -3.8% -1.6% Asia High Yield Corporates -2.4% 0.3% Commodity Equity Year to date 1 month Diversified Commodity -1.2% -4.8% Year to date 1 month Agriculture -5.2% -8.6% Global Equities 0.3% -1.4% Energy 5.0% -5.9% Global High Dividend Yield Equities -3.3% -2.7% Industrial Metal -4.2% -2.6% Developed Markets (DM) 1.2% -1.0% Precious Metal -4.6% -1.8% Emerging Markets (EM) -6.0% -4.7% BY COUNTRY Crude Oil 12.2% -7.8% US 3.8% 0.9% Gold -2.8% -2.0% Western Europe (Local) -0.7% -3.9% Western Europe (USD) -3.7% -4.9% Japan (Local) -2.6% -3.2% FX (against USD) Japan (USD) -0.2% -2.1% Year to date 1 month Australia -1.4% -0.2% Asia ex- Japan -1.3% -1.2% Asia ex- Japan -3.0% -3.9% AUD -5.5% -2.7% Africa -16.4% -7.8% Eastern Europe -7.6% -6.8% EUR -3.3% -1.6% Latam -13.7% -10.3% GBP -2.0% -1.4% Middle East 12.9% 2.0% JPY 2.5% 1.0% China 1.8% -2.9% SGD -1.7% -1.3% India -6.5% 3.0% South Korea -9.5% -7.3% Taiwan 0.0% -2.1% Alternatives BY SECTOR Year to date 1 month Consumer Discretionary 6.0% 1.5% Composite (All strategies) -0.5% -0.6% Consumer Staples -6.9% 1.2% Relative Value 2.5% 0.8% Energy 2.5% -6.8% Financial -5.5% -5.0% Event Driven -4.2% -0.3% Healthcare 2.5% 1.1% Equity Long/Short 1.1% -0.4% Industrial -3.5% -4.5% Macro CTAs -2.0% -3.3% IT 10.0% 1.8% Source: MSCI, JPMorgan, Barclays, Citigroup, Dow Jones, HFRX, FTSE, Materials -3.8% -5.4% Bloomberg, Standard Chartered Telecom -9.7% -1.8% *All performance shown in USD terms, unless otherwise stated Utilities -2.2% -0.5% *YTD performance data from 31 December 2017 to 21 June 2018 and Global Property Equity/REITS 0.0% 1.8% 1-month performance from 21 May 2018 to 21 June 2018 This reflects the views of the Wealth Management Group 12
Standard Chartered Bank Global Market Brief | 25 June 2018 17 Events calendar JULY 01 Mexico Presidential and Mexico Presi Parliamentary elections Parliamentar 26 ECB policy decision ECB policy d 31 BoJ policy decision BoJ policy de 02 FOMC policy decision AUGUST SEPTEMBER X Japan LDP President Japan LDP P election where Prime election wher Minister Abe faces Minister Abe challengers challengers 13 ECB policy decision ECB policy d 7 Brazil elections – 1st round Brazil elections – 1st round OCTOBER 19 BoJ policy decision BoJ policy de 25 ECB policy decision ECB policy decision 27 FOMC policy decision FOMC policy 28 Brazil elections – 2nd round Brazil elections – 2nd round 31 BoJ policy decision BoJ policy decision NOVEMBER 06 US House (all 435 seats) US House (a and Senate (33 out of 100 and Senate ( seats) elections seats) electio 09 FOMC policy decision FOMC policy 13 ECB policy decision ECB policy decision 12-18 APEC Summit APEC Summ DECEMBER 20 FOMC policy decision FOMC policy decision 20 BoJ policy decision BoJ policy decision JANUARY 31 Fed policy meeting 16 Nigeria general election due Nigeria general election due FEBRUARY X Thailand to hold general Thailand to hold general elections elections MARCH 29 UK to leave the EU 10 ECB policy decision APRIL 17 Indonesia general election due MAY 02 FOMC policy decision FOMC policy X India general election due Malaysia Ge 06 ECB policy decision FOMC policy JUNE decision 20 FOMC policy decision ECB policy decision Legend: X – Date not confirmed | ECB – European Central Bank | FOMC – Federal Open Market Committee (US) | BoJ – Bank of Japa This reflects the views of the Wealth Management Group 13
Standard Chartered Bank Global Market Brief | 25 June 2018 The team Our experience and expertise help you navigate markets and provide actionable insights to reach your investment goals. Alexis Calla Belle Chan Cedric Lam Chief Investment Officer Senior Investment Strategist Investment Strategist Steve Brice Daniel Lam, CFA Abhilash Narayan Chief Investment Strategist Senior Cross-asset Strategist Investment Strategist Christian Abuide Rajat Bhattacharya Ajay Saratchandran Head Senior Investment Strategist Senior Portfolio Manager Discretionary Portfolio Management Audrey Goh, CFA Samuel Seah, CFA Clive McDonnell Senior Cross-asset Strategist Senior Portfolio Manager Head Equity Investment Strategy Jill Yip, CFA Trang Nguyen Senior Investment Strategist Portfolio Strategist Manpreet Gill Head Francis Lim Kelly Tan FICC Investment Strategy Senior Investment Strategist Cross-asset Strategist Arun Kelshiker, CFA DJ Cheong Head Investment Strategist Portfolio Strategy This reflects the views of the Wealth Management Group 14
Standard Chartered Bank Global Market Brief | 25 June 2018 21 Disclosure appendix THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT. This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. 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In particular, we recommend you to seek advice regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs, before you make a commitment to purchase the investment product. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document has not been and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. 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SCB, and/or a connected company, may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities, currencies or financial instruments referred to on this document or have a material interest in any such securities or related investment, or may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such investments. Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be reproduced, forwarded or otherwise made available to any other person without the express written consent of SCB, nor should it be distributed into any other jurisdiction unless permitted by the local laws and regulations of that jurisdiction. Neither SCB nor any of its directors, employees or agents accept any liability whatsoever for the actions of third parties in this respect. Copyright: Standard Chartered Bank 2018. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved. © Standard Chartered Bank 2018. Standard Chartered Private Bank is the private banking division of SCB. Private banking activities may be carried out internationally by different SCB legal entities and affiliates according to local regulatory requirements. Not all products and services are provided by all SCB branches, subsidiaries and affiliates. Some of the SCB entities and affiliates only act as representatives of the Standard Chartered Private Bank, and may not be able to offer products and services, or offer advice to clients. They serve as points of contact only. Country Specific Disclosures Botswana: This document is being distributed in Botswana by, and is attributable to, Standard Chartered Bank Botswana Limited which is a financial institution licensed under the Section 6 of the Banking Act CAP 46.04 and is listed in the Botswana Stock Exchange. China – Hong Kong: In Hong Kong, this document, except for any portion advising on or facilitating any decision on futures contracts trading, is distributed by Standard Chartered Bank (Hong Kong) Limited (“SCBHK”), a subsidiary of Standard Chartered Bank. SCBHK has its registered address at 32/F, Standard Chartered Bank Building, 4-4A Des Voeux Road Central, Hong Kong and is regulated by the Hong Kong Monetary Authority and registered with the Securities and Futures Commission (“SFC”) to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activity under the Securities and Futures Ordinance (Cap. 571) (“SFO”) (CE No. AJI614). The contents of this document have not been
Standard Chartered Bank Global Market Brief | 25 June 2018 reviewed by any regulatory authority in Hong Kong and you are advised to exercise caution in relation to any offer set out herein. If you are in doubt about any of the contents of this document, you should obtain independent professional advice. Any product named herein may not be offered or sold in Hong Kong by means of any document at any time other than to “professional investors” as defined in the SFO and any rules made under that ordinance. In addition, this document may not be issued or possessed for the purposes of issue, whether in Hong Kong or elsewhere, and any interests may not be disposed of, to any person unless such person is outside Hong Kong or is a “professional investor” as defined in the SFO and any rules made under that ordinance, or as otherwise may be permitted by that ordinance. In Hong Kong, Standard Chartered Private Bank is the private banking division of Standard Chartered Bank (Hong Kong) Limited. China - Mainland: This document is being distributed in China by, and is attributable to, Standard Chartered Bank (China) Limited which is mainly regulated by China Banking Regulatory Commission (CBRC), State Administration of Foreign Exchange (SAFE), and People’s Bank of China (PBOC). Ghana: Standard Chartered Bank Ghana Limited accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of these documents. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. You should seek advice from a financial adviser on the suitability of an investment for you, taking into account these factors before making a commitment to invest in an investment. To unsubscribe from receiving further updates, please click here. Please do not reply to this email. Call our Priority Banking on 0302610750 for any questions or service queries. You are advised not to send any confidential and/or important information to the Bank via e-mail, as the Bank makes no representations or warranties as to the security or accuracy of any information transmitted via e-mail. The Bank shall not be responsible for any loss or damage suffered by you arising from your decision to use e-mail to communicate with the Bank. India: Standard Chartered Bank is registered with Securities and Exchange Board of India as an Investment Advisor (Registration Number: INA000002249) under the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. You can avail of investment advisory services of Standard Chartered Bank only upon (i) executing separate documents with the Investment Advisory Group of Standard Chartered Bank for availing 'Investment Advice’ (as defined in the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013); and (ii) paying specific fees (if applied by Standard Chartered Bank ) for such ‘Investment Advice’. Standard Chartered Bank acts as a distributor of mutual funds and referrer of other third party financial products, for which Standard Chartered Bank receives commission / referral fees from the product provider. Jersey: In Jersey, Standard Chartered Private Bank is the Registered Business Name of the Jersey Branch of Standard Chartered Bank. The Jersey Branch of Standard Chartered Bank is regulated by the Jersey Financial Services Commission. Copies of the latest audited accounts of Standard Chartered Bank are available from its principal place of business in Jersey: PO Box 80, 15 Castle Street, St Helier, Jersey JE4 8PT. Standard Chartered Bank is incorporated in England with limited liability by Royal Charter in 1853 Reference Number ZC 18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. The Jersey Branch of Standard Chartered Bank is also an authorised financial services provider under license number 44946 issued by the Financial Services Board of the Republic of South Africa. Jersey is not part of the United Kingdom and all business transacted with Standard Chartered Bank, Jersey Branch and other Standard Chartered Group Offices outside of the United Kingdom, are not subject to some or any of the investor protection and compensation schemes available under United Kingdom law. Kenya: Investment Products and Services are distributed by Standard Chartered Investment Services Limited, a wholly owned subsidiary of Standard Chartered Bank Kenya Limited (Standard Chartered Bank/the Bank) that is licensed by the Capital Markets Authority as a Fund Manager. Standard Chartered Bank Kenya Limited is regulated by the Central Bank of Kenya. Malaysia: This document is being distributed in Malaysia by Standard Chartered Bank Malaysia Berhad. Recipients in Malaysia should contact Standard Chartered Bank Malaysia Berhad in relation to any matters arising from, or in connection with, this document. Singapore SCBSL: This document is being distributed in Singapore by, and is attributable to, Standard Chartered Bank (Singapore) Limited (“SCBSL”). Recipients in Singapore should contact SCBSL in relation to any matters arising from, or in connection with, this document. SCBSL is an indirect wholly-owned subsidiary of Standard Chartered Bank and is licensed to conduct banking business in Singapore under the Singapore Banking Act, Chapter 19. IN RELATION TO ANY FIXED INCOME AND STRUCTURED SECURITIES REFERRED TO IN THIS DOCUMENT (IF ANY), THIS DOCUMENT TOGETHER WITH THE ISSUER DOCUMENTATION SHALL BE DEEMED AN INFORMATION MEMORANDUM (AS DEFINED IN SECTION 275 OF THE SECURITIES AND FUTURES ACT, CHAPTER 289 (“SFA”). IT IS INTENDED FOR DISTRIBUTION TO ACCREDITED INVESTORS, AS DEFINED IN SECTION 4A OF THE SFA, OR ON TERMS THAT THE SECURITIES MAY ONLY BE ACQUIRED AT A CONSIDERATION OF NOT LESS THAN S$200,000 (OR ITS EQUIVALENT IN A FOREIGN CURRENCY) FOR EACH TRANSACTION. Further, in relation to fixed income and structured securities mentioned (if any), neither this document nor the Issuer Documentation have been, and will not be, registered as a prospectus with the Monetary Authority of Singapore under the SFA. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the product may not be circulated or distributed, nor may the product be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons other than a relevant person pursuant to section 275(1) of the SFA, or any person pursuant to section 275(1A) of the SFA, and in accordance with the conditions, specified in section 275 of the SFA, or pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured. Singapore SCB, Singapore Branch: This document is being distributed in Singapore by SCB, Singapore branch only to accredited investors, expert investors or institutional investors, as defined in the Securities and Futures Act, Chapter 289 of Singapore. Recipients in Singapore should contact SCB, Singapore branch in relation to any matters arising from, or in connection with, this document. In Singapore, Standard Chartered Private Bank is the Private Banking division of SCB, Singapore branch. SCB, Singapore branch (Registration No. S16FC0027L) (GST Registration No.: MR-8500053-0) is licensed to conduct banking business under the Banking Act, Chapter 19 of Singapore. IN RELATION TO ANY FIXED INCOME AND STRUCTURED SECURITIES REFERRED TO IN THIS DOCUMENT (IF ANY), THIS DOCUMENT TOGETHER WITH THE ISSUER DOCUMENTATION SHALL BE DEEMED AN INFORMATION MEMORANDUM (AS DEFINED IN SECTION 275 OF THE SFA). IT IS INTENDED FOR DISTRIBUTION TO ACCREDITED INVESTORS, AS DEFINED IN SECTION 4A OF THE SFA. Further, in relation to fixed income and structured securities mentioned (if any), neither this document nor the Issuer Documentation have been, and will not be, registered as a prospectus with the Monetary Authority of Singapore under the SFA. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the product may not be circulated or distributed, nor may the product be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons other than a relevant person pursuant to section 275(1) of the SFA, and in accordance with the conditions, specified in section 275 of the SFA, or pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured. In relation to any collective investment schemes referred to in this document (if any), this document is for general information purposes only and is not an offering document or prospectus (as defined in the SFA). This document is not, nor is it intended to be (i) an offer or solicitation of an offer to buy or sell any financial product; or (ii) an advertisement of an offer or intended offer of any financial product.
Standard Chartered Bank Global Market Brief | 25 June 2018 Thailand: Please study the Scheme Information Documents carefully e.g. investment policy, risks, fund performance before investing. UAE: DIFC - Standard Chartered Bank, Dubai International Financial Centre (SCB DIFC) having its offices at Dubai International Financial Centre, Building 1, Gate Precinct, P.O. Box 999, Dubai, UAE is a branch of Standard Chartered Bank and is regulated by the Dubai Financial Services Authority (“DFSA”). This document is intended for use only by Professional Clients and is not directed at Retail Clients as defined by the DFSA Rulebook. In the DIFC we are authorized to provide financial services only to clients who qualify as Professional Clients and Market Counterparties and not to Retail Clients. As a Professional Client you will not be given the higher retail client protection and compensation rights and if you use your right to be classified as a Retail Client we will be unable to provide financial services and products to you as we do not hold the required license to undertake such activities. For Islamic transactions, we are acting under the supervision of our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in the Islamic banking section here. UAE: For residents of the UAE – Standard Chartered Bank UAE does not provide financial analysis or consultation services in or into the UAE within the meaning of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis. Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: Standard Chartered Bank (trading as Standard Chartered Private Bank) is an authorised financial services provider (licence number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia. Market Abuse Regulation (MAR) Disclaimer Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively “SCB”) according to local regulatory requirements. Opinions may contain outright “buy”, “sell”, “hold” or other opinions. The time horizon of this opinion is dependent on prevailing market conditions and there is no planned frequency for updates to the opinion. This opinion is not independent of SCB’s own trading strategies or positions. SCB and/or its affiliates or its respective officers, directors, employee benefit programmes or employees, including persons involved in the preparation or issuance of this document may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities or financial instruments referred to in this document or have material interest in any such securities or related investments. Therefore, it is possible, and you should assume, that SCB has a material interest in one or more of the financial instruments mentioned herein. If specific companies are mentioned in this communication, please note that SCB may at times do business or seek to do business with the companies covered in this communication; hold a position in, or have economic exposure to, such companies; and/or invest in the financial products issued by these companies. Further, SCB may be involved in activities such as dealing in, holding, acting as market makers or liquidity providers, or performing financial or advisory services including but not limited to, lead manager or co-lead manager in relation to any of the products referred to in this communication. SCB may have received compensation for these services and activities. Accordingly, SCB may have a conflict of interest that could affect the objectivity of this communication. SCB has in place policies and procedures, logical access controls and physical information walls to help ensure confidential information, including material non- public or inside information is not disclosed unless in line with its policies and procedures and the rules of its regulators. Please refer to https://www.sc.com/en/banking-services/market-disclaimer.html for more detailed disclosures, including past opinions in the last 12 months and conflict of interests, as well as disclaimers. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.
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